Author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness

Trump's Protectionist Fallacies Have Been Refuted By Free Market Economists for Hundreds of Years

08/31/2015 11:27 am ETUpdated
Aug 31, 2016

It's easy to understand the visceral attraction to Donald Trump's campaign. My own libertarian heart beats a little stiff when he waves the one finger salute at establishment institutions that crush our freedom, including the Republican Party leadership, the mainstream media and the useless D.C. politicians themselves.

It's not what Donald Trump is against that bothers me. It's what he's for. So much attention has been paid to his immigration stance from a race perspective that no one seems to care how anti-free market his platform is. Trump is running on economic fallacies that have been consistently refuted by free market economists for hundreds of years.

When Adam Smith wrote Wealth of Nations, it wasn't to refute the "godless socialists" 21st-century Republican voters believe are taking over the world. It was to refute the kinds of protectionist ideas championed by conservatives like Edmund Burke and Alexander Hamilton in Smith's day, Abraham Lincoln eighty years later, and Trump today.

Bastiat remade Smith's case in 1848. Henry Hazlitt did so again in 1946. Still, these economic fallacies persist, because they offer the victims of other bad economic policies villains they can blame for largely self-inflicted economic wounds.

Every time a Trump supporter sees "Made in China" on a pair of sneakers, he throws up his hands and says, "Do you see that? They're stealing our manufacturing jobs." He then repeats a version of Bastiat's broken window fallacy. It goes something like this:

China puts tariffs on our products, so our exports can't compete in its markets. But we don't put tariffs on China's exports, making their sneakers cheaper than we can make them here. American sneaker manufacturing jobs go to China, but no Chinese manufacturing jobs come to the United States.

Not only do millions of Americans lose their jobs, say the protectionists, but all of the money they would have spent domestically is instead spent in China. This causes other American business to fail, cut production or not expand as much as they otherwise would. The unemployed American factory worker doesn't eat out at the local restaurant. The restaurant needs less wait staff and cooks, who in turn don't have money to spend on new clothing, etc.

As Bastiat would say, this is "what is seen." The argument ignores what is unseen.

What is unseen is the money American consumers wouldn't have if the tariffs were put in place. Instead of paying $100.00 for a pair of sneakers, they would pay $200.00 to support the higher costs of production in America. That is $100.00 they now do not have to spend on other products, which they must forego. They now do not eat out at the restaurant as often or buy new clothing, resulting in the same reductions in revenue for those employers.

To this, the protectionist might say, "But the $100 savings on a pair of sneakers doesn't replace the entire $50,000 a year job that has been lost." This is just more of the same fallacy.

First, the entire $50,000 is not lost. All other things being equal, the unemployed sneaker factory employee goes to another job. The job may pay less, but that is only because the higher salary earned making sneakers was not the true market price for that job. It was born of intervention by the government.

Regardless, what is lost is only the difference between the employee's previous salary and his new one.

Second, one must compare the number of jobs lost to the number of consumers of sneakers. While apparel manufacturing never employed more than about a million people in the U.S., consumers of sneakers number in the hundreds of millions.

When the ledger is balanced for all of these considerations, Americans in general are far better off without the tariff on sneakers. They now have $100 for every pair consumed to add to their own quality of life and to create millions of jobs which wouldn't exist otherwise.

This same logic applies to all manufacturing jobs "lost" to China and other countries. The lower prices Americans pay for automobiles, clothing, Apple iPhones and Bobcats allows them to subsidize those American industries which do operate more efficiently than their overseas competitors. That's called "comparative advantage," something else free market advocates since Adam Smith have been educating people about.

Conservatives like to point out that American taxpayers "don't owe other people houses." I completely agree, but the sword cuts both ways. American consumers don't owe manufacturing workers a higher paying job, subsidized with artificially higher prices for consumer goods.

Unemployment is a much bigger problem than the massaged BLS statistics say it is. But it isn't because manufacturing jobs have migrated to where they are cheapest. Driving up the price of consumer goods with protectionism will only make things worse.

We'd be better served by looking at interventions that really do contribute to unemployment, like the misallocation of labor and capital caused by Federal Reserve inflation, the millions misdirected away from skilled labor jobs by government-subsidized college loans, and stifling regulations that put downward pressure on new starts and expansion.

In other words, conservatives would do themselves and the rest of us a favor listening to "boring" candidates like Rand Paul, who may not offer scapegoats for us to pump our fists at, but whose economic ideas are based in reality.